Trade deficit widens to $33b in FY22

The country’s trade deficit has widened to $33.24 billion in 2021-22 fiscal year as a result of more import spending than export earnings, triggering the recent volatility in the foreign exchange market.

According to the latest data from the Bangladesh Bank (BB), the deficit rose by $9.47 billion, or 39.83 per cent, year-on-year. The trade deficit was 23.77 billion in 2020-21 fiscal year.

Export growth rose by 33.45 per cent to $49.24 billion in FY22 from $36.90 billion in the previous fiscal year.

On the other hand, import growth rose by 35.95 per cent to $82.49 billion in FY22 fiscal year from $60.68 billion in previous fiscal year.

The import cost has increased due to the increasing prices in the international market prompted by the Russia-Ukraine war, and the increased demand in the domestic market due to pandemic recovery, said Zahid Hussain, former lead economist of World Bank Dhaka office.

“I think it will continue in the coming days,” he added.

The economist thinks that the initiatives taken by Bangladesh Bank and National Revenue Board to reduce the imports will be useful to contain the widening deficit.

However, he is doubtful about the reducing of government spending.

The government has to take initiatives to reduce its expenditure. The initiative of cutting expenditure on unnecessary projects, and others should be ensured, the economist said.

The deficit current account balance stood at $18.69 billion in the FY22, which was $4.57 billion in FY21.

As per the BB data, the net foreign direct investment flow rose by 60.81 per cent to $2.17 billion in the last fiscal year.

Mentioning the net FDI inflow, Hussain said that the growth is significant, but the investment environment has not improved much. Besides, the amount of actual investment is very low, he added.

The economist advised to continue the gradual devaluation of the taka to tackle the instability of exchange rate and to activate the interbank dollar market.

The inter-bank exchange rate stood at Tk 94.70 per dollar on Monday. However, the rate is inactive as importers are spending Tk 108 to Tk 110 per USD to pay import bills. If there is a gap in supply and demand, the value of the dollar will rise, said Hussain adding that the inter-bank dollar market should be activated without fixing any kind of dollar rate to ensure the supply.

Meanwhile, the investment of foreigners in the capital market decreased by 45.45 per cent to $114 million in FY22.

Zahid Hussain said that the domestic and foreign investors are withdrawing their investments from the capital market apprehending more losses due to continued devaluation of money.